ACI WORLDWIDE, INC. Q1 2026 earnings call

Thank you. Good morning, everyone. On today's call, we will discuss ACI Worldwide's Q1 2026 results, as well as our updated financial outlook for the remainder of the year. The slides accompanying this webcast can be found at aciworldwide.com under the Investor Relations tab and will remain available after the call. We will open the line for your questions. As always, today's call includes forward-looking statements and is subject to the safe harbor provisions. You can find the full text of these statements in our earnings press release and in our filings with the SEC. These documents describe important risk factors that could cause actual results to differ materially from those indicated at any forward-looking statements. Joining me today are Tom Warsop, our President and CEO, and Bobby Leibrock, our Chief Financial Officer.

Tom will begin with an overview of our Q1 performance, strategic highlights, and the progress we're making against our long-term plan. Bobby will then review our financial results in more detail, including segment performance, cash flow, and updated outlook for 2026. We'll then open the line for questions. Before we begin, I'd like to let everybody know that we will be attending several upcoming investor conferences, including J.P. Morgan's 2026 Global Technology, Media, and Communications Conference on May 18th, 2026 in Boston, Baird's 2026 Global Consumer Technology and Services Conference on June 4th, 2026 in New York City, and D.A. Davidson's 2026 Technology Conference in Nashville on June 11th, 2026. With that, I'll turn the call over to Tom.

Thanks, John. Good morning, everyone. As always, I appreciate you joining us for our Q1 2026 earnings call. We're pleased with the start to 2026, that's building on the strong performance we delivered throughout 2025. We're executing well, we're delivering on our promises, we're staying focused on our strategic priorities. We're in a strong competitive position, we're increasingly optimistic about the outlook for our business. If I look at the Q1, we delivered 6% organic revenue growth in constant currency, that growth compares against the strongest Q1 in the company's history last year. That is the strongest quarter until this quarter since we grew on top of that. I'm particularly happy with this performance.

Our focus on operational efficiency, combined with the operating leverage in our model, drove over 160 basis points of FX adjusted, net adjusted EBITDA margin expansion and 8% adjusted EBITDA growth. The combination of this overall strong operating performance and our continued share repurchases, I'll detail that a little bit later, translated to double-digit growth in adjusted EPS. Bobby's gonna cover the quarter in more detail in a few moments, but for my part, I'd like to step back and provide an update on our strategic initiatives and what we're seeing in our markets. Our business momentum stems from continuing sustained focus on our multi-year value creation strategy. As we regularly discuss, our strategy emphasizes growth within our core vertical markets, disciplined operational execution, and a return-driven approach to capital allocation.

We expect our strategy to enable us to deliver at least high single-digit organic revenue growth, strong cash flow conversion, and the allocation of capital to drive incremental value, all with a focus on maximizing shareholder returns. Our growth strategy is built on expanding within our existing customer base in addition to winning new logos and of course, accelerating innovation all along the way. Within our Payment Software segment, we took a major step forward in 2025 when we unified our bank and merchant businesses into what we now call Payment Software. The goal was to increase efficiency, to accelerate innovation, and to simplify our operating structure. We're seeing the benefits of this strategy, and the Payment Software business had a very solid Q1, growing 6%, 2% on a constant currency basis.

Again, as you recall, Q1 last year was particularly strong in this area, driven by our largest competitive issuing and acquiring takeaway ever in the Asia Pacific region. Our issuing and acquiring solutions remain leading edge and strongly in demand. We've been at it for 50 years, our latest versions of these proven tools utilize leading technology as we continue to innovate and deliver market-leading customer value. These solutions are, to put it very simply, mission critical. They're so critical, in fact, that we actually had one Middle East customer push itself to not let an upgrade go live date slip, even with the Iran conflict raging all around them. Together, we successfully delivered on time, that's just another reminder of the resilience of our customers, the dedication of our employees, and the mission-critical nature of the solutions we provide.

They just wouldn't let it slip. We also saw strength in real-time payments. That part of the business grew revenue by over 20% as increasing real-time payment volumes drive larger total contract values at renewal. Transaction volumes, as most of you know, are one of the key levers we use at ACI to expand our relationships with existing customers. I'd like to share a specific example from Q1 of how this sometimes works as it relates to real-time account-to-account solutions. We had a renewal of a BASE24 customer in the Q1. It was happened to be in Asia. This is a customer that's seeing very significant growth in real-time payment transaction volumes.

We were able to construct a deal which drove mid-single-digit growth in the pricing for their renewing portion of their transactions and 25% plus growth in pricing related to the net new real-time transactions. Those transactions are generating new business, incremental business for the customer. Overall, when you put all that together, this led to a healthy overall increase in total contract value from this customer. As RTP volumes continue to grow, we expect similar opportunities across our portfolio. This is a demonstration of the power of having many different payment solutions our customers can use as the market evolves. They see ACI as a partner across payments, not just in a particular payment area. I gave you an example of RTP and its impact in Asia.

Much of our business and the growth we're seeing right now is international, the U.S. adoption of real-time payments is also starting to pick up. FedNow and RTP adoption is increasing. This is obviously a huge opportunity for us, and we remain optimistic about future volume growth here domestically. The volumes are still small in the U.S., but we're definitely seeing them start to expand. We also continue to make progress advancing ACI Connetic, and that of course, is critical to our long-term platform and modernization strategy. In the quarter, we expanded Connetic scope and momentum. We extended the platform to modernize card payments, to unify multi-rail U.S. clearing connectivity, and to embed advanced fraud and verification capabilities directly into the payment flow.

These advancements reinforce Connetic's role as a single cloud-native foundation that helps customers reduce complexity, manage risk, and modernize across payment types at their own pace. Connetic's capabilities combined with ACI's proven reliability and future-ready roadmap remain and are in fact growing as meaningful differentiators between us and our competitors. I wanna share something about the broader Connetic strategy that may not be quite as clear to some people and may require a little more explanation. Let me try to put it this way. Simply investing in Connetic, and of course, that's the name of our next-generation payments technology, just investing in that is providing confidence in our customer base that our longer-term technology roadmap is aligned with where most people in the industry want to go. I wanna use a sports analogy here.

We're skating to where the puck will be, not where it is today. As we compete for work under RFPs and during renewals, we're consistently asked about our multi-year roadmap and how we're going to help customers modernize without introducing undue risk. Connetic is that roadmap. It's resonating. Even when a customer isn't ready to migrate immediately, they're not ready internally. Aligning our strategy with theirs builds confidence and supports expansions and longer duration commitments. We've had several customers sign significant contracts with us for our core solutions because of Connetic, even when they're not quite ready to go all the way down the Connetic path. To illustrate this dynamic, I wanna use another specific example from the Q1.

We had a renewal with a major North American bank, and I personally engaged to finalize the renewal terms, and the entire conversation was not about the renewal itself, the products they use today. It was about Connetic. Even though the bank is not ready to embark on the modernization journey Connetic enables, they know they need it in the future. The bank's CTO told me he wants Connetic. He wants to begin the preparation for it during the next few years, and that's during the renewal period, this renewal period, and that he wants us to be ready to hit the ground running at the time of the next renewal. When I say us, I mean the bank and ACI.

In the meantime, they've asked for our help to get the bank to a place where they can make the progress they need internally from a business process, a personnel perspective, and a technology perspective. They want our help, and of course, we're thrilled to support them. This is an example of Connetic supporting expansion of a renewal deal and positioning us as the long-term partner for our customers. Now I wanna turn to Biller, where we continue to see strong results, and that's building on the momentum we saw in 2025. A key area of focus is advancing our market-leading Speedpay One platform. That's driving core electronic bill payment transaction growth and new customer relationships. We signed significant new contracts in the quarter, and our total new ARR bookings grew 39% for the company, a majority of which was attributable to Biller.

We signed several new logos, and we saw some nice expansionary upsells with existing customers in our utility and insurance verticals in particular. 1 renewal that I'd like to highlight provided us an opportunity to improve pricing substantially while offsetting interchange increases, and that shows the strength of the relationship and leadership position we hold in the utility sector. Another large client was able to work with us to significantly improve its customer experience while also dramatically lowering operating costs by shifting transaction volume from calls to self-service. When they do that reduces the operating cost from about $20 per inbound call to about $1 for a self-service interaction. That client was also able to consolidate four platforms into one while significantly improving the overall experience and adding new payment options at the same time.

Thank you, Tom, and thank you all for joining us today. I'll begin with a brief review of our Q1 financial performance, followed by an update on our balance sheet, liquidity, and cash flows. I'll close with an update on our guidance and capital allocation priorities for 2026. As Tom said, we had a solid start to the year, driven by our progress on our growth initiatives, strong operating discipline, and focused execution following the move to a two-segment operating model last year. That translated into margin improvement and continued progress against our capital allocation priorities. Total revenue in the quarter was $426 million, up 8% year-over-year on a reported basis and up 6% in constant currency. Recurring revenue was $313 million, up 10% as reported and up 8% in constant currency.

The continued growth in recurring revenue reflects strong momentum and increasing demand from our software-led offerings across both Payment Software and Biller. We delivered Q1 adjusted EBITDA of $105 million, an increase of 12% year-over-year or 8% in constant currency, driven by solid organic growth and improved operating performance. As a result, adjusted EBITDA margin was 38%, up from 36% last year, reflecting continued disciplined execution and the operating leverage inherent in our software model. We also took certain one-time cost reduction actions in G&A during the quarter, which are excluded from our adjusted EBITDA. Net new ARR bookings increased 39% to $12 million, while new license and services bookings were $50 million, flat against a notably strong prior year comparison.

Turning to our segment results, in Payment Software, revenue increased 2% in constant currency to $214 million. We continue to see increasing demand for cloud-based offerings, with SaaS revenue growing 11% in Q1, excluding FX. Segment recurring revenue, representing SaaS and maintenance, grew 9% year-over-year as reported or 6% in constant currency. From a product perspective, we saw particular strength in real-time payments and merchant, which grew 22% and 21% in constant currency, respectively, driven by transaction-based volume growth within our customer base. Fraud management was essentially flat as were issuing and acquiring, which maintained the strong revenue levels achieved in the Q1 last year. Payment Software EBITDA was $113 million in the Q1, up 2% year-over-year in constant currency.

EBITDA margin was 53%, flat versus last year, as operating leverage was offset by continued investment in growth initiatives, including ACI Connetic. Turning to Biller, revenue increased 10% to $212 million, driven by higher transaction volumes and new customer wins. Revenue net of interchange increased 5% year-over-year. We continue to see strong new business momentum across utilities, government, and consumer finance as Billers increasingly consolidate onto modern digital platforms. We also continue to advance ACI Speedpay, our next generation Biller platform, supporting the long-term modernization of the segment. Building on Tom's comments, I wanna highlight the diversity of our top 10 ARR contributions this quarter. Three were consumer finance, three were utilities, two in insurance, and two in government and higher ed. That breadth across verticals is exactly what we wanna see. Equally important is the balance between new and expansion.

Three of the 10 were new logos. Seven were existing customers expanding the relationship with us. That mix is a healthy indicator of the durability of our growth. Biller adjusted EBITDA grew 10% to $34 million. EBITDA margin net of interchange was 51%, up more than 200 basis points from last year, reflecting operating leverage from new implementations and incremental volume from existing customers. Turning to cash flow and the balance sheet, cash flow from operating activities was $64 million in the Q1 compared to $78 million last year. Strong underlying performance continued to translate into solid cash generation with the year-over-year change driven by timing and working capital, including a higher concentration of billings late in March. We are not seeing changes in billing discipline or collection patterns. We expect this timing to normalize in the Q2.

We ended the quarter with $162 million of cash on hand and total debt of $812 million, resulting in net leverage of 1.3 times adjusted EBITDA below our targeted leverage range of two times. With total liquidity of $560 million, including revolver availability, our balance sheet remains a strategic asset and provides flexibility to invest in growth while returning capital to shareholders. Capital allocation remains a core component of our value creation framework. As Tom discussed during the Q1, we repurchased 1.5 million shares for approximately $65 million. Since the start of 2025, we've repurchased roughly 5.7 million shares, representing more than 5% of shares outstanding.

We remain well on track to allocate 50% to 60% of operating cash flow to share repurchases in 2026, and we ended the quarter with $391 million remaining under our current authorization. Turning to our outlook for 2026. Based on the strong start to the year, we are raising our financial guidance. This increase is driven by operational performance with minimal impact from currency movements relative to our February guidance. For the full year, we now expect revenue growth of 7% to 9% or $1.89 billion-$1.92 billion, up from our prior forecast. Both Payment Software and Biller are expected to deliver upper single-digit growth. For the Q2, we expect revenue of $420 million-$440 million, representing approximately 7% growth at the midpoint.

Payment Software is expected to deliver double-digit growth while Biller is expected to grow at mid-single digits against a strong prior year comparison. Looking to the H2, we see a strong pipeline of implementations and renewals with a heavier contribution weighted towards the Q4. We expect an approximate 40/60 revenue split between Q3 and Q4, consistent with historical patterns. Payment Software licenses are the primary driver of the SKU, with Biller expected to accelerate in the H2. For the full year, we are raising adjusted EBITDA guidance to a range of $540 million-$555 million, up from $530 million-$550 million, representing growth of 7%-10%. This outlook reflects continued cost discipline while reinvesting in high return initiatives and maintaining flexibility to support our long-term roadmap.

For the Q2, we expect adjusted EBITDA in the range of $85 million-$95 million. Looking ahead to the remainder of 2026 and beyond, we remain confident in our strategy and execution. A strong balance sheet and a highly cash generative business give us the flexibility to return capital to shareholders while continuing to invest in innovation and long-term growth. With that, Tom and I would be happy to take your questions.